Modeling the dynamic linkage between financial development, energy innovation, and environmental quality: Does globalization matter?

TLDR

Financial development drives economic expansion and energy innovation worldwide, yet its environmental impact has prompted concerns about potential adverse effects on environmental quality. The study investigates the interrelations among financial development, economic growth, energy innovation, and environmental pollution in OECD countries from 1990 to 2017. The analysis employs a Pooled Mean Group Autoregressive Distributed Lag model to address heterogeneity and cross‑sectional dependence. Empirical results show that financial development promotes energy innovation and improves environmental quality, globalization has a long‑term positive effect on energy innovation and reduces GHG emissions, and the environmental Kuznets curve holds for OECD countries with respect to financial development, globalization, and energy innovation.

Abstract

Abstract In the modern era of the wave of globalization, financial development is leading toward a higher rate of economic expansion and promoting energy innovation around the globe. Nevertheless, environmental impact of financial development has preoccupied government officials to circumvent adverse impact on environmental quality. Thus, this paper examines the nexus between financial development, economic growth, energy innovation, and environmental pollution for the period of 1990–2017 for the panel of Organization for Economic Cooperation and Development (OECD) countries. To obtain robust and unbiased results, this study utilizes Pooled Mean Group Autoregressive Distributed Lag (PMG/ARDL) estimator that counters the issue of heterogeneity and cross‐sectional dependence. Empirical evidence suggests that financial development promotes energy innovation and improves environmental quality. Globalization also has a long‐term relationship with energy innovation and reduces greenhouse gas (GHG) emissions. Moreover, findings validate the environmental Kuznets curve for OECD countries in the significance of financial development, globalization, and energy innovation.